Ep # 18: Do Elections Matter To My Financial Plan - Take 2

Benjamin Haas |
 

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Benjamin Haas: 

Hi, everyone, and welcome to A/B Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple of Certified Financial Planners on how we think and feel about everyday financial planning questions, and what should really matter most to you. A healthier financial life starts...now.

Adam Werner: 

Hey there, welcome back.

Benjamin Haas: 

I am pleased to be back. How are you today?

Adam Werner: 

Just great. Favorite day of the week? Podcast day.

Benjamin Haas: 

I love it. I hope our audience loves. Great topic again, today. Very timely.

Adam Werner: 

Yeah. So we're going to revisit a topic that we first covered back in August, it was "do elections matter"? And we gave that perspective on, from a financial planning side of things, how do elections influence or not influence our strategies from a planning perspective? So this will be do elections matter - Part Two, the follow up. Now that we we have a new year, we have a new administration, we have some more variables that are known. Let's revisit, have our opinion changed at this point, knowing what we know now? Do elections matter?

Benjamin Haas: 

Yes, they do. No, our opinion has not changed. So let's separate those two. Yes, of course, elections matter. You know, here we are, I guess for maybe getting close to five months from the last time we recorded that, we're still in the middle of multiple crisises, here in the country. Stakes have never been higher. And I think elections matter, it's now shown that two thirds of the country actually voted. That has not been that high, since going back to 1900. So it's the degree to which it matters that I think we really hit on the last time, and maybe we should do that again. Elections to our financial plans, maybe don't matter as much as we think. That was our point. Don't let your politics affect how you invest. I'd say let's go through maybe some of those logistics. We now know what happened since August. So let's talk about that. And then maybe talk about why the market is, in our opinion, up so much right now.

Adam Werner: 

Let's run through that quick bullet point of just now what has become more solidified? What do we actually know now? What weren't sure of back when we first discussed it. There was the the thought of, if there was a democratic sweep, the you know, the quote unquote, the blue wave, what would that mean? How would the market react? And that that wave technically happened that now the the house or I should say, yes, that the house is still democratic controlled. The Senate right now is a 50/50 split, with the Vice President. So theoretically, you could say they have a slight control there. By being the President, they have have control there. So we wouldn't necessarily call it a wave. It was more of like, you know, a light drizzle, the split. And you have the statistics. That the split in the house is what like seven votes,.

Benjamin Haas: 

It's 10 seats.

Adam Werner: 

10 seats and clearly the the senate being evenly split, it doesn't seem like that initial feared response of complete control and being able to push bigger agenda items that may have that trickle down effect negatively to the markets. Doesn't seem like that's on the horizon.

Benjamin Haas: 

And I guess, we don't have to make this podcast totally about politics. But those that maybe know me personally know that my degree was in political science. So I got a little charged up thinking about this. But the I guess the reality is, it is 51% blue, in all factions of government. So that's not a strong majority at all. In fact, when you think, the the factions in each party right now. Just because the democrats have control does not mean the progressive agenda is gonna gonna fly. And I think that's where we hear some people talking about, well, doesn't that mean, we're going to lead to all this more spending, socialism, yada, yada, yada. We have a very moderate government. If we look beyond, that blue wave on the surface. And I think that's the key to maybe why the markets up so much right now, because it's still even though it's one party, barely, it's still a very divided government, which is going to make it very hard to actually get anything done, in our opinion. I think that's what the markets telling us.

Adam Werner: 

So a lot of what I've been hearing and reading is that this scenario, with how evenly things are split, it may even be kind of the Goldilocks scenario for the stock market and for the economy that there is enough, control, quote, unquote, to be able to pass some more stimulus measures to pass some additional spending bills, get some help to get us through hopefully the end of this COVID crisis, once vaccines can greatly roll out, to the light at the end of the tunnel. But there's not so much democratic control or, or really will with throughout the the government to really increase taxes to any large degree. That was kind of the fear, right? If there was a large tax increases this, this spending, and this debt has to be paid for, eventually, some way somehow. That was the initial fear that there was going to be large increases in taxes that would limit either investment itself, or just corporations really pressing the pause button on their own growth.

Benjamin Haas: 

And I think that's what the markets telling us. I mean, we're, we're up, it's crazy to think reps, 15%, 16%, maybe even 17%, by now, since November 3rd, 4th, or whatever that actual date was. If you think about it for most investors, that our kind of asset allocation middle of the road, that's like three years worth of the returns that you're seeking, you know, why is the market going up so much? I think you hit on it. The belief here is that what can actually get done, it's going to be more stimulus, more aid. Maybe, Biden's administration is less hawkish on trade, right, something that was throwing the market into a little bit of a tantrum in 2018/2019. Maybe we're spending on rebuilding America a little bit infrastructure, if you're truly politically neutral, and you look at this strictly from that market perspective, you like all those things. And I think that's why the markets up and not really looking at the political divide in the way that I think us as individuals might.

Adam Werner: 

And the other side of that, and I'm pretty sure we talked about this in the original podcast, is the the political side of things does not necessarily equal the economy. What really drives the markets, and there's absolutely policy and legislation that can impact companies taxes, the personal side of things that can really impact at the local levels of how does it actually impact us, and can cause some some trickle down effect to the markets. But ultimately, it's how's the economy doing and are companies profitable, that's what's really driving the stock market pricing. That's the mechanism itself. And from that aspect, it's really driven right now it's all COVID. At some point, it's getting the vaccine rolled out, it's the light at the end of the tunnel that we can start to reopen the services sector that is still hurting. It's at the restaurant industry. It's anything that's not Walmart, and Amazon and Target the consumer staples that still had to go on. But the things that are still shut down and can't reopen and really fully get back to normal. That's where the market is kind of projecting out 6, 12, 18 months seeing that, hopefully, by the middle of this year, the end of this year, that there will be enough herd immunity between people that have had it and the vaccine rollout, that we can start to get back to a more normalized economy, and that the market is really trying to the price in right now.

Benjamin Haas: 

Let me let me stick on that time horizon you just spoke of it. But if the market is really like being a weighing station 12 to 18 months from now, I think the markets already looking at mid-term elections. And this is where I'll get my political science history back in here, too. It's very likely that Democrats lose seats. And that's just history. Only three times in the last 22 elections, I think, has the incumbent party picked up seats in the mid-term in the house. And I think there's only four times in the senate. Don't quote me, but it's it's something very small percentage of time they actually pick up seats. So just looking at history. It's not a situation, I think, where the markets are predicting that something grand is going to change and the makeup of our government right now and the way that policy changes would be considered significant. So I think, put that all together. Let's maybe move to the investment side of this. I think this election cycle reinforced to a degree what we are saying. What lessons did we learn here? It's kind of just stay the course, isn't it?

Adam Werner: 

And I'm pretty sure that was, I hope that was one of the takeaways from our first conversation. That this can absolutely affect you on a personal level. Everyone has their own their own political views and their own, you know, pros and cons based off of the situation. From a financial planning and from an investment perspective, at the end of the day, this is only one of many variables that really get baked in to that, either to the market pricing or your own financial planning strategies. That it really can be filtered out. So let's focus on the things that you can control. Your own goals, your own saving, your own spending, and let's just stay focused on on that side of things.

Benjamin Haas: 

I really like the way you put that, because we often try to kind of pinpoint that as the way that people need to think about it, that there's so many different things that can tip the scale of is the market going up or is it going down? That it's our own human nature, that's at fault, for believing that some piece of headline news carries more weight on that scale than it does. And it could be something that is important to us independently, you know, personal lives are our values, something of that nature. But it doesn't necessarily mean that that equates to tipping the scale for the market. I think that's taught us a lesson not only the politics this time around again, but certainly the look at let's look at 2020 on the whole, there was so much going on. So much volatility, it was volatility like we we've certainly never seen in our lifetime. I want to throw one more stat out there and get your your feedback on this. Pullbacks in the market are defined by 5% from its highest point, and then coming back down. Corrections 10%. Bear markets 20%. We had 10 pull backs of more than 5% last year. We had 78 of the I'm sorry, 93 of them in the 78 years prior. So that's just crazy.

Adam Werner: 

One to one and a half per year on average.

Benjamin Haas: 

And we had 10 last year. And actually eight of them occurred after that horrible pull down in March. So we think, it's, hey, we've seen this great recovery we have since April 1st, but eight times between April 1 and the end of the year, we had some some panic going on again. So I really want the lesson to be both politics and investments. What you went through in 2020, pat yourself on the back if you stayed the course. Because you went through more volatility than historically you've ever gone through before. And if you stayed the course, what it showed us was, you were rewarded. Right? The market did okay.

Adam Werner: 

And historically that's been the case, right? We we say it and it's true over long enough time horizons. If you stay invested you are rewarded for staying the course and staying invested over over those periods of time. You can always pick out shorter pieces of the calendar. Maybe if you started investing in February of 2020. And you sold in April, you probably lost money if you invested in any sort of risk asset, even bonds. But over a long enough time period, you are rewarded. Because the market has always recovered from all of these crisis's. So I think that's the other side of it. And you said it, it's patting yourself on the back. If you if you were able to stomach that ride. And I'm certainly guilty of it, too. It's the recency bias of now that we're at the end of the year, and you're looking back on the year as a whole and you think, oh, the S&P 500 was up 16 to 18% if you include the dividends. geez, wow, that's a great year. But yeah, thinking back of all of the volatility that it took to get to that end result is where, yeah, you really have to stick to your plan and stay disciplined to block out a lot of that noise and just trust the process over time.

Benjamin Haas: 

Yeah, you had to have a lot of emotional

Adam Werner: 

fortitude.

Benjamin Haas: 

Yes, I'm glad you filled in the blank, because I couldn't, I shouldn't be using the word that was popping into my head. You had to be really emotionally strong to hang in there. And you were rewarded for it. It wasn't easy lifting. But I you know, let's button that up. That's why we're here. You know, it's not easy for us either. We carried that weight on our shoulders of knowing we had all these people relying on us to kind of keep a steady hand. But that's the point. If you build the plan, that is your lifeboat jump, don't jump out of the lifeboat when things get crazy. Whether that's how you're feeling politically or what you think could happen to the markets. So stay the course.

Adam Werner: 

Yeah, I guess the the caveat there being this was one of the if not the swiftest bear market, from peak to the bear market. But it was also one of the quickest rebounds off of that. That may not be the case. In the future, it may take a little bit more fortitude to be able to ride maybe a longer downturn. But we've seen it 2008 was a great example. That was a pretty ugly draw down. It took years to recover any meaningful to any meaningful level. But again, here we are almost 13 years removed from that process. And if you look at the stock market chart over that period of time, it's it's still that upward sloping to the right graph.

Benjamin Haas: 

Who knows where we go from here, but let's not ignore history, I guess is the point.

Adam Werner: 

Yes.

Benjamin Haas: 

All right. Thank you, sir. Do elections matter? Of course they do. Should they change your plan? Our answer still? No. Let's hang in there.

Adam Werner: 

That's right.

Benjamin Haas: 

All right. Thanks for the time.

Adam Werner: 

Okay. Bye.

Benjamin Haas: 

Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we've voiced in this show are for general information only, and are not intended to provide specific recommendations for individuals to determine which strategies or investments may be most appropriate for you. Consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening

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